Nderitu is a renowned contractor. He's handled several projects and built a good reputation.
But even experienced contractors can make costly mistakes.
A common one?
Spending the client's advance payment before earning it.
Imagine a client pays Nderitu KSh 100,000 to start a project.
He buys materials, pays workers, clears a few bills and uses the balance to cover other expenses.
Then it's time to move to the next stage.
He needs KSh 70,000 to continue.
But only KSh 20,000 remains.
The client has paid, but Nderitu is struggling to finish the job.
Now he's under pressure to find more money, meet deadlines and protect his reputation.
And there's a tax twist.
If Nderitu is VAT-registered, VAT may be due when he receives the advance, even before he completes the work.
So he could spend the money, still owe the client the work, and have a tax bill waiting.
How can he avoid this?
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Plan each stage. Know how much materials, labour and other costs will take before starting.
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Link payments to milestones. Agree on stages of payment that help fund the next phase.
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Protect the advance. Don't treat all the money received as cash available to spend. Set aside what you need to complete the job and cover any VAT due.
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Track it properly. An advance is generally money received for work you still need to deliver, not income you've fully earned.
Remember, the purpose of an advance is to help you deliver the project, not finance unrelated expenses.
A client paying you is one thing.
Having the money to finish their job is another.
